The Costs and Benefits of Caring: Aggregate Burdens of an Aging Population


As the population of the United States ages, the number of elderly people who require living assistance is increasing. To understand how this impacts aggregate output, we calibrate an OLG model where growth endogenously depends on the care young agents choose to provide for their parents. Relative to an economy with a constant population distribution, we project that population aging will reduce GDP 15% by 2057 and 35%by 2097. Exogenous reductions in the incidence of diseases such as Alzheimer’s and dementia can lead to 1.3% higher output relative to the baseline. In an economy where hypothetical drugs to treat these diseases are supplied by a competitive market as opposed to a patent-holding monopolist, lifetime welfare is between 2% and 4% higher.